How to calc final bonus on endowment

In message , Johndigits writes

Absolutely, but note the word 'may' and the method of apportionment can vary wildly.

Yep.

Yep, except that in response to an enquiry from the policy holder for a quotation for a) the response will give a value that will hold for XX days and in b) when the company sends its own final maturity letter it will hold the value contained therein.

Thats right.

Thats right too,

err, yes (ish). It isnt bankers but the InsCos and dont forget that the 'with profits' concept was a 'mutual' concept in which all the beneficiaries were the members of the society. These days 90% of 'profits' within such now demutualised funds are returned to policy holders and the they have also received a share issue bonus.

There are two parts to this answer, the first is that 'with profits' is a complicated concept and is beyond the scope of this thread.The principle behind it is fine, but it is when it is put into practice that the trouble starts. The second is that it was the FSA that exacerbated the problem by their intervention into otherwise strong funds and which caused the demutualisation of Standard Life.

Having said all that if you have been a student of this group pretty much from its instigation you will know I have been a constant critic of most 'with profits' funds so I hope you dont think my apparent defence of them means I agree with them. The underlying problem is that whilst w/p was fine many years ago, many funds were badly managed and were overly influenced by the marketing department and it was perceived that the only way to get out of trouble was to attract more investors. They did this by artificially maintaining a high and attractive reversionary bonus, even by guaranteeing such a bonus for new business, whilst the fund was in fact losing value in a falling equity market. Its a bit like trying to maintain the maximum rate of climb of a rocket assisted jet plane after the rockets have stopped and then the FSA nicks the jet fuel..............

That's about the size of it.

Why not indeed! In principle it seems that the size of the terminal bonus actually awarded is completely at the discretion of the InsCo. They might as well exercise their discretion to award nil bonuses.

It really is a bit off for the punters to be left in the dark with nothing to go on (no stolen police toilet jokes). Basically it may mean that many folk who've been told they're facing the possibility of shortfalls when the time comes to pay off their mortgage interest only loan, may end up with their WP TB mopping up most of the shortfall.

Such uncertainty! It as bad as, as, well, as buying shares in the damned company and not knowing what they'll be worth in umpteen years' time!

In message , Clifford Frisby writes

Here is another third party explanation then, assuming its a traditional with profits policy:

FSA says project at growth rates of x,y & z% and then underneath the projections will be a note saying these are purely examples and everyone would be very suprised if they bore any relation to reality, but they allow for a demonstration of the effect of charges and costs on growth.

The real policy then has bonuses added each year to the original sum assured.

At maturity a final bonus might (the word might is what makes the FSA say ignore) be added on top. This terminal bonus is a function of the company's past, current and anticipated future[1] profitability and length of the policy and will be some (positive) percentage figure. Generally a 25 year endowment will have a larger proportion of terminal bonus than a 10 year. I suspect a diligent google might provide details of recent terminal bonuses for your insurance company.

In message , Derek Way writes

Does it not vary with length of policy? I used to have a list (1998/99?) for Sun Life of Canada and I'm sure the terminal bonuses were higher for longer terms.

My annual AXA endowments statements include a chart of what the current bonus allocations are eg policies over 30yrs currently are getting +80%. I suspect (I haven't checked) that over the years the allocations shown have dropped so it is true I won't know what I will get for mine in 5yrs time but I remain optimistic.

In message , " snipped-for-privacy@privacy.net" writes

Suggest the followings words inserted..

the

pool that is currently held by the company

It is not impossible that the 10 year plan will mature with more dosh than the 25 year one.

In message , " snipped-for-privacy@privacy.net" writes

The percentage could be the same, but the actual amount would be greater.

In message , John Boyle writes

I was referring to the percentage.

In message , " snipped-for-privacy@privacy.net" writes

In that case it is probable that the Terminal Bonus only attaches to the sum assured and not also the accrued reversionary bonus.

As I said earlier AXA supply a chart with my policies. The percentage increases with the length of policies from 0% to 80%. Past final bonuses I have received have been calculated on the total (assured + accum).

In message , AnthonyL writes

Ive just remembered the other possibility which is that the AXA plan is a unitised plan and so the TB cold be as you describe. Sorry. For some reason my mind was working in 'traditional' mode only.

You needn't be concerned that I'm not already aware of all that.

Clearly it was a mistake for me to construct a post in which I used the first person (i.e. 'I') to refer to a dimwit fictional protagonist and also to refer to my real self, as in the person authoring the Usenet post.

I (real me) don't throw away my bonus notices. At least not without reading them and scanning them first. But I don't kid myself that the act of opening the envelope, reading and scanning makes a blind bit of difference to what next year's maturity projections will be.

You say that the underlying fund is 'mythical'. I don't agree. We may not agree on what it is, but fortunately we don't need to for this argument; the FSA knows what it means and so does the lifeco, and they consider the consequences of it growing at particular future rates.

So, I'll try again:

"Ian Vestor gets a letter at the end of year 1 of his endowment policy which includes a projection of £40000 payout on maturity under the assumption that 'underlying investments' grow at 8%/annum over the remaining 9 years. The letter states that any terminal bonus is already included in that projection. (He also get some strange bonus notice which makes him glaze over and so it gets thrown straight in the bin.)

As it happens, and by pure coincidence but well within the laws of nature, the 'underlying investments' of which the letter referred to do grow by 8% in year 2.

At the end of year 2 of his endowment policy, Ian Vestor gets a letter which includes a projection of £X payout on maturity under the assumption that 'underlying investments' grow at 8%/annum over the remaining 8 years. The letter states that any terminal bonus is already included in that projection. (He also get some strange bonus notice which makes him glaze over and so it gets thrown straight in the bin.)"

What would we expect 'X' to be in the above?

There is probably no need to reply because other branches in this thread already seem to agree that it ought reasonably to be 40000, and that, absurdly, it is exclusive of any 'final bonus' even though the lifeco states it as being inclusive of any 'final bonus'.

That, of course, is his big mistake. It is the bonus letter he should study and the projection which he should throw in the bin.

It's an old ex-Equity & Law "With Profits" taken out around 1971.

In message , AnthonyL writes

Well that is definitely traditional W/P, not unitised.

Not the FSA, but the Treasury Committee had a good go at them here:

rgds, Alan